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2.21.24
Delaware Court of Chancery Addresses Fiduciary Duty Claims Arising from Reincorporation to Nevada
On February 20, 2024, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery issued an opinion refusing to dismiss stockholder claims challenging the reincorporation of TripAdvisor from Delaware to Nevada and determining that the entire fairness standard of judicial review, rather than the business judgment rule, applied to the decision to reincorporate. The essence of the court’s determination was that the purpose of the reincorporation was to reduce stockholder litigation risks for its fiduciaries and that a reduction in the litigation rights of stockholders in a controlled company creates a non-ratable benefit for the controller. Accordingly, the standard of review governing the transaction is entire fairness unless the company uses some type of procedural protections, such as approval by an independent board committee and/or minority stockholders, to lower the standard of review by simulating an arm’s-length negotiation. Because no such steps were taken here, the court denied the defendants’ motion to dismiss and allowed the case to proceed under the entire fairness standard.
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6.29.23
Delaware Court of Chancery Issues Decision on Disney Board’s Obligations in the DeSantis Dispute
On June 27, 2023, Vice Chancellor Lori Will of the Delaware Court of Chancery issued a much-anticipated decision addressing the obligations of the board of directors of The Walt Disney Company (Disney) in overseeing Disney’s response to Governor Ron DeSantis and the “Don’t Say Gay” bill, or HB 1557. In particular, the court rejected a books and records demand by a Disney stockholder seeking to investigate wrongdoing on the basis that the Disney board had breached its fiduciary duties by placing its own personal beliefs ahead of the interests of the corporation and its stockholders and taking positions that impaired the company’s value. The litigation reflects the pressures increasingly confronting corporations, and the landmark decision provides valuable guidance to boards in navigating environmental, social, and governance (ESG) issues and controversies.
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5.15.23
Delaware Court of Chancery Addresses Drag-Along Provisions and Covenants Not to Sue in the Private Company M&A Context
Vice Chancellor J. Travis Laster of the Delaware Court of Chancery recently issued a decision addressing whether a covenant not to sue set forth in a stockholders’ agreement is enforceable under Delaware law, with the result that a stockholder would be precluded from challenging a sale of the corporation.1 Such covenants have become increasingly common among private companies, and the covenant in this case was based on a National Venture Capital Association form.
Client Highlights
5.10.23
D.C. Circuit Grants NRDC Petition for Review Supported by Wilson Sonsini Amicus Brief
On May 9, 2023, the U.S. Court of Appeals for the D.C. Circuit held that the Environmental Protection Agency’s (EPA’s) decision not to regulate perchlorate in drinking water violated the Safe Drinking Water Act (NRDC v. Michael Regan, et al., USCA Case #20-1335). When perchlorate is ingested through drinking water, it can disrupt thyroid hormone production, leading to neurodevelopmental issues, particularly in fetuses and young children. Due to these risks, in 2011 the EPA issued a final determination to regulate perchlorate in drinking water nationally. However, the EPA never promulgated such regulations and withdrew its own determination that it should regulate perchlorate. The National Resources Defense Council (NRDC) petitioned for review, arguing that the EPA lacked the authority to withdraw that determination under the Safe Drinking Water Act.
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3.21.23
In Rare Decision, Delaware Court of Chancery Imposes Liability on CEO and Acquiror Post-Trial
On March 15, 2023, Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery issued a rare post-trial decision finding a CEO personally liable for millions of dollars in damages for breaching his fiduciary duties by tilting his company’s sale process in favor of his preferred acquiror and failing to disclose material facts about the sale process. Equally unusual, the Court of Chancery found the acquiror liable for monetary damages, on a joint basis with the CEO, for aiding and abetting the CEO’s breaches of fiduciary duty in providing inadequate disclosures to stockholders. The decision provides valuable insight into what Delaware courts expect of management and a board when selling a company, as well as the risks that can arise when a court determines that a sale process and related disclosures were improper.
Alerts
8.02.22
Delaware Court of Chancery Blesses MFW Process and Dismisses Challenge to Stockholder-Approved Charter Amendment Extending Dual-Class Structure
On July 29, the Delaware Court of Chancery issued a noteworthy decision1 confirming the broad application of the "MFW" framework—based on the Delaware Supreme Court's decision in Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014)—to the range of corporate transactions involving controllers. In this case, Vice Chancellor Paul A. Fioravanti applied MFW to grant motions to dismiss in a novel context: a challenge to a stockholder-approved charter amendment extending the sunset of the company's dual-class structure. The court held that because the charter amendment was properly approved by both a special committee of independent directors and a majority vote of the unaffiliated stockholders, the deferential "business judgment rule" standard of review applied to the board's decision to adopt the amendment, thus warranting dismissal.
Client Highlights
1.26.22
Wilson Sonsini Pro Bono Victory in Medicare Class Action Affirmed, Stands to Protect Appeal Rights for Vulnerable Medicare Patients Nationwide
Previously, in March 2020, Wilson Sonsini, along with co-counsel Center for Medicare Advocacy (CMA) and Justice in Aging, obtained a trial victory at the district court level on behalf of a nationwide class of Medicare beneficiaries to appeal adverse classifications that affected their right to Medicare coverage for often critical care. On January 25, 2022, following an appeal and challenge of the ruling by the defendant, a panel of the U.S. Court of Appeals for the Second Circuit issued an opinion, stating “we find no merit in these challenges. We therefore AFFIRM.”
Alerts
11.22.21
SEC Requires Use of Universal Proxy Cards in Proxy Contests
On November 17, 2021, the Securities and Exchange Commission (SEC) adopted rules that will require the use of a single "universal" proxy card in connection with most contested elections of directors. These rules, which have been discussed for years, may make it easier for activist investors to gain representation on corporate boards by requiring proxy cards distributed in connection with a contested election to include the names of all director candidates; this will allow shareholders to "mix and match" between candidates nominated by the company and by the activist. The new rules take effect for contested elections of directors after August 31, 2022.
Client Highlights
7.12.21
Delaware Court of Chancery Orders Specific Performance in Favor of Wilson Sonsini’s Client After Declining to Find Material Adverse Effect
On July 9, 2021, the Delaware Court of Chancery issued a post-trial opinion in Bardy Diagnostics, Inc. v. Hillrom, Inc., C.A. No. 2021-0175-JRS, ordering specific performance in favor of Wilson Sonsini Goodrich & Rosati’s client, Bardy Diagnostics, Inc. (BardyDx), the seller under a merger agreement with Hill-Rom, Inc. (Hillrom). The Wilson Sonsini team included partners David Berger, Steven Guggenheim, and Brad Sorrels; Of Counsel Andrew Cordo; senior counsel Jessica Hartwell; and associates Lindsay Faccenda, Ben Potts, Nora Crawford, Jeremy Gagas, and Leah León.
Client Highlights
4.09.21
Wilson Sonsini Advises Box on Partnership with KKR, $500 Million KKR-led Investment
On April 8, 2021, Box, Inc., the leading Content Cloud, and KKR, a leading global investment firm, announced an agreement for KKR funds to lead a $500 million investment in the company in the form of convertible preferred stock. The investment from KKR will advance the company’s strategy to deliver the Box Content Cloud and enable customers to modernize how they work and drive digital transformation throughout their organizations. Wilson Sonsini Goodrich & Rosati represented Box in the transaction.
Client Highlights
12.01.20
Wilson Sonsini Advises Collectors Universe in Acquisition by Investor Group
On November 30, 2020, Collectors Universe, a leader in third-party grading and authentication services for high-value collectibles, announced that it had entered into a definitive agreement under which an investor group led by entrepreneur and sports card collector Nat Turner, D1 Capital Partners, L.P., and Cohen Private Ventures, LLC, will acquire all of Collectors Universe’s outstanding shares of common stock for $75.25 per share in cash. Wilson Sonsini Goodrich & Rosati advised Collectors Universe on the transaction.
Alerts
3.18.20
Delaware Supreme Court Rules Federal Forum Selection Charter Provisions Are Valid
Earlier today the Delaware Supreme Court issued an important en banc decision1 upholding the right of Delaware corporations to adopt forum-selection provisions in their charters requiring claims under the Securities Act of 1933 (the "'33 Act") to be brought in federal court (the "Federal Forum Provisions"). The Supreme Court's decision provides a critical tool for pre-IPO companies to address the increase in the number of lawsuits brought in state court asserting claims under Section 11 of the '33 Act challenging disclosures in their registration statements. Prior to this ruling, many such claims were brought in state courts which had led to inconsistent and unpredictable rulings. As a result, D&O insurance premiums for such claims have increased dramatically in recent years.